Reasons Why Premium Bank Lost Licence

By Modern Ghana

Kwesi Tumi, immediate past MD of Premium Bank

The Central Bank says Premium Bank was insolvent as of 30th November 2018 with a capital adequacy ratio of negative 125.26 percent. Premium Bank Limited was licensed by the Bank of Ghana (BoG) as a universal bank on 3rd May 2016 but following recent investigations into the affairs of the bank, the Central Bank found out that it was technically insolvent.

“The bank had continuously breached the Capital Adequacy Ratio (CAR) requirement since December 2017. All efforts to get the bank to correct its capital deficiency position proved futile. The situation further deteriorated, resulting in the bank reporting a CAR of negative 125.26% with a capital deficit of GH¢1.15 billion as at end November 2018. The bank's reported net-worth as at end-November 2018 was negative GH¢528.33 million, implying the bank is insolvent. The bank's liquidity and solvency challenges prompted the Bank of Ghana to undertake investigations into how the bank was capitalised.

“The investigation revealed that the bank obtained its banking licence under false pretences through the use of suspicious and non-existent capital, which has resulted in a situation where its reported capital is inaccessible to them for their operations. Details of the capital verification exercise revealed that of the GH¢90 million introduced by the Vanguard Group Limited, GH¢30 million was borrowed from Royal Bank and GH¢45 million borrowed Capital Bank. These were lodged at Premium Bank's account with Stanbic Bank Ghana Limited on February 19, 2016 and February 27 2016 respectively.”

Further details

Premium Bank subsequently placed GH¢30 million and GH¢45 million with Royal Bank and Capital Bank respectively as investments, although its original intent was to pay-off the funds borrowed.

“This implied that these investments were fictitious, hence the bank's inability to access the funds to meet its operational needs.

The remaining balance of GH¢15 million was transferred from Premium Bank's account (then City Investments Company Limited) with Stanbic Bank to purchase 182 Day Treasury Bills at the Universal Merchant Bank on February 22, 2016 and subsequently introduced as capital.

The Bank of Ghana, on June 8, 2017, requested the shareholders of the bank to inject capital to replace their statutory reserve fund, which was wrongly capitalised as part of the requirement for licensing the bank.

To meet the requirement, the bank transferred funds totalling GH¢6 million to CDH Savings and Loans on July 19, 2017 and subsequently moved the funds to the bank's account with Bank of Ghana through its Stanbic Bank account on July 20, 2017.

BoG said on the basis of the above, Vanguard Group Limited did not introduce any capital into the business.

The total impaired paid-up capital therefore amounted to GH¢96 million.

“The bank has persistently breached the cash reserve requirement (CRR) of 10% (CRR at December 19, 2018 was 0.01%) since April 11, 2018 and is also unable to honour customer withdrawals.

Debts

The bank is exposed to its related parties to the tune of GH¢444.38 million as at July 2018, totaling (37.2% of the bank's loan book as of November 2018).

The said amount was more than the bank's net own funds, thereby breaching the regulatory limit of 10%.

The bank has not been able to recover these funds. Outstanding loans to related parties were wrongly classified by the bank as “investments” for reasons which remain unclear.

“The prudential returns submitted to the Bank of Ghana were inaccurate, as exposures to related parties were misreported as investments with non-bank financial institutions, thereby breaching Section 93 of Act 930. In July 2018, the bank's total investments with Non-Bank Financial Institutions (NBFIs) reported amounted to GH¢1.08 billion.

“The bank's inability to access these funds at a period in which it was faced with serious liquidity challenges indicated that those investments were either impaired or fictitious. An investigation that sought to review the quality of the bank's investments revealed that an “investments” totalling GH¢444.38 million were loans granted to related parties and were fictitiously booked as investments with non-bank financial institutions.”